Trump's Rust Belt and the Hoofbeats of Technology

I am permitting myself one political/policy related post on this blog. I can't help it. I am a child of the beltway: my father served in the Clinton White House and I spent my early years on the floor of the West Wing doing 3rd grade homework. This piece takes no sides. It merely offers observations based on my perch in the Midwest. President-elect Donald Trump’s historic path to victory was driven by a wave of discontent amongst the Rust Belt’s working class – and specifically by unexpected victories in Ohio, Pennsylvania, Michigan and Wisconsin. It’s a demographic that has experienced thirty years of economic stagnation - median family net worth in these areas in unchanged since 1996, materially lagging the effects of inflation - and many of its previously stable jobs have moved overseas.

The Rust Belt is an area of the country that I’ve spent much of the past decade focused on. I moved to Illinois from New York City in 2007 to help build a startup technology company. And over the past five years, we, at Chicago Ventures, have raised over $100M to invest in technology startups in the central region. Spanning dozens of investments, the firms we’ve backed now employ several thousand individuals and collectively generate hundreds of millions of dollars in revenue. Our efforts follow a broader trend: in 2016 alone, nearly $1B was raised by venture capital funds with a mandated focus on the Midwest and central regions. In 2015, $2.9B of venture capital dollars were deployed into Midwestern companies, a 50% boost from 2010’s $1.9B tally.

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But these efforts are largely irrelevant to Trump’s disaffected base. The areas that have most benefitted from the growth in the technology sector since 2010 are metropolitan cities such as Chicago – 40,000 new jobs, the Twin Cities with 10,000 new technology jobs, even Columbus and Madison. These cities – by nearly every economic and educational metric – are dislocated from their rural surroundings which offer a dearth of high tech jobs.

It gets worse. A Trump White House might well aim to stem blue collar job losses via anti-trade policies, but it will nevertheless face extraordinarily strong headwinds. Software – which Marc Andresseen presciently noted in 2011 – is undeniably “eating the world.” Just last month, Otto – which Uber acquired for $680M earlier in the year – completed its inaugural autonomous trucking delivery. Trucking, with a mean starting salary of $51,000 according to Indeed, employs 3.5 million drivers across the country and is the most common job in nearly every state Trump carried, according to 2015 Census Bureau data. Progress in artificial intelligence and robotics is already threatening tens of millions of additional service level jobs from customer service to nursing, and is even encroaching on white collar industries such as CPAs, financial advisors, even optometrists. The effect on the Rust Belt could be devastating.

New jobs are likely to be created to service growth in emerging technology industries. But they, like many of the 5.8M jobs already open (and unfilled) according to the Labor Department, are also likely to demand highly skilled professionals and skew towards urban areas.

Still, having invested throughout the central region for the past five years, I do believe there is room for optimism. First, the Midwest is home to many of the premier universities and computer science programs in the country. Michigan’s “No Worker Left Behind” experiment, which lasted three years and culminated in 2010, may provide a key. The act, which opened up all of the State’s universities to low income or laid-off workers, retrained 100,000 individuals over that period. According to a 2013 study of 4,500 of its participants, 55% attributed success in obtaining a new job to the program while 58% said they found it helpful in performing their jobs. Moreover, according to former Michigan Governor Jennifer Granholm, the program offered many of the state’s most displaced workers a second chance at “dignity” – which has been an increasing focus of the post-election discussion.

Second, many Midwestern states offer Angel Investment Tax Credits designed to spur innovation and increase jobs in high growth startups. However, these tax credits often make little distinction between investing in distressed versus non-distressed areas, with the effect that the overwhelming majority of rebates stay in existing technology centers. I have watched firsthand as the majority of these credits have supported businesses that would otherwise still have been funded and provided rebates to institutional investors who were largely agnostic. States must work to re-think these programs to stimulate technology development specifically in distressed areas.

Third, and most importantly, more school districts – especially those in rural areas – should follow Chicago’s lead in making computer science education mandatory. A 2015 Gallup/Google poll found that 90% of parents view computer science education as a good use of school resources and 67% want it to be mandatory. CS education is about more than web development jobs – it will provide improved literacy as the digital age spurs a more technology driven, rather than asset driven, economy. This effort, like the others, has the added bonus of improving the dignity and self-confidence of our valuable working class.

Pundits have defined the election as a referendum on the status quo; but the status quo was already in grave jeopardy. This election, globalization took the blame – but in 2020, it may well be technology and automation.